2018’s Top Three Terrible and Great Things in Policy

At the end of the year, it is traditional to look back and reflect on what went well and on what went wrong. In that spirit, here is my list of the three worst things that Congress and the Trump administration did, followed by a list of my three favorites.

But before I start, I would like to say I could have given you at least 10 things that I think went really wrong in 2018. But I here don’t wish to be my usual downer self, which is why I pair my list of negatives with a list of positives. Unfortunately, I had to stretch my brain to find as many as three policy developments from 2018 that I actually can applaud. With that in mind, let’s start.

The Bad News

First: a budget-busting horror show. I know I sound like a broken record, but what this past year provided is yet more evidence that Republicans don’t care at all about restraining government spending and public debt. This fiscal folly started with a despicable budget deal that added $300 billion on top of overall spending over two years. It continued with more spending far beyond the budget caps imposed during the Obama administration.

Not surprisingly, the Democrats were often partners in these deals; they get a good portion of the blame too. But Democrats have never pretended that they wanted these budget caps. And they could not have repeatedly broken through federal spending limits without Republicans leading the effort.

All this spending frenzy comes after 2017’s tax-reform bill, which falls short of paying for itself in spite of its many pro-growth provisions. Republicans, then as now, refused to cut spending. They also made no efforts to propose reforms of Social Security, Medicare, and Medicaid. The end result of all this fiscal irresponsibility is $22 trillion of debt (more accumulated in the last 11 years than in the entire history of the U.S.) and the return of trillion-dollar annual budget deficits in spite of a booming economy.

Second: the return of protectionism. Of course, the Trump tariffs, all of them, are simply awful. But it is even more tragic to watch the many people who claim to be free traders and yet who now are cheering the president along as he raises the cost of consumption for so many American consumers and workers.

These new protectionists insist, against all evidence, that they really do believe in free trade, but they also — astonishingly — swallow the president’s line that he truly wants zero tariffs and that he is the best trade strategist ever. And as if this incredulity is not bad enough, these new protectionists also now beat us over the head with breathless assertions of how awful China is and how China’s trade policies justify Trump’s trade war.

Never mind that Trump’s allegedly brilliant strategy has produced only chaos, uncertainty, and higher prices. Never mind either that even if all of this bullying results in the Chinese government changing some of its behaviors, mostly to the benefit of its own people; Trump’s steel and aluminum tariffs will still remain, and the world will overall be more protectionist than it was before President Trump came into power.

Third: unprincipled politicians. No matter where you look, you will be hard-pressed to find a politician, or even a staffer, in the House, the Senate, or the White House who truly believes in liberty and free markets. There are a few I can think of on the House side, including Reps. Justin Amash and Thomas Massie. And there are a few in the Senate who have good instincts occasionally. But I can count all of these officials on one hand.

As 2018 went on, we saw proposals to raise carbon taxes, to tax corporations’ buybacks of their shares, to mandate paid leave, and to subsidize wages — all alleged to be important reforms, but with no acknowledgment of what these taxes, prohibitions, and mandates would do to the size and scope of government.

There was also no mention of the fact that there are no free lunches and that government intervention often backfires against those whom it is meant to help. And, of course, no one ever mentions that we are starting with a $1 trillion deficit and $22 trillion of accumulated debt and, therefore, that we should probably eliminate a few programs before we envision expanding the government’s reach.

The Better News

First: bipartisan passage of the first criminal-justice reform bill. The First Step Act is by far the best thing that has happened in 2018. The bill itself won’t be as transformative as I wish it would ideally be. It won’t end the war on drugs or free those in prison who committed only the “crime” of consuming and trading substances that the government arbitrarily decided it doesn’t want people to consume. But this statute is, as its name states, a first step. First steps are often the hardest to take, but they bring with them the hope that many more reforms will follow.

Second: a growing economy. It is hard to overstate the benefits of economic growth. Companies have increased real investment expenditures (up $180 billion from the fourth quarter of 2017), just as economists predicted they would following the reduction of the corporate tax rate from 35 percent to 21 percent. This increased investment matters to workers, too, since more investment means higher productivity and, hence, higher wages. It is also clear that there is an optimism among executives of big and small companies alike, optimism unseen in a long time.

Now, I hate to rain on that parade, but it must be said here that the idiotic trade war is hindering what would be an even higher rise in optimism among business owners. But I will stick to the positive.

Third: the Export-Import Bank remains a mere shadow of itself. (I warned you that I need to reach far to find three positive things to say!) Three years have passed since the bank has been able to function at its past potential. That’s because a lack of quorum on its board of directors still prevents it from making any deals that are bigger than $10 million — and such large deals represented about 84 percent of Ex-Im’s past activities.

The result of being reined in is what one would expect: we see no negative impact on U.S. exports; the portion of Ex-Im funding going to small businesses rather than to large manufacturers like Boeing has tripled; and the share of Ex-Im funding going to China has collapsed.

I fear that these happy results will not survive 2019 (see number three of my “bad” list). But I will enjoy them as long as they last.

Now, as I finish this column, the president has announced that he will remove U.S. troops from Syria. He may even do what he always said he wanted to do and get us out of Afghanistan. Now that would be worth celebrating.

AIER Senior Fellow Veronique de Rugy is also a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist.
Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.
She received her MA in economics from the Paris Dauphine University and her PhD in economics from the Pantheon-Sorbonne University.

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